21% of banks planning to purchase additional BPO services over the next 12-months

Overall 21% of retail and investment banks are planning to purchase additional BPO services over the next 12-months, with approximately half of these initiatives in support of changes in operating model.

The principal issues for both investment banks and retail banks remain increased capital requirements and the impact and uncertainty around new banking regulation. This need for increased capital requirement places pressure on banks to examine their process models and investigate new ways of achieving cost savings. At the same time, the state of the economy continues to have an adverse impact on banking customer confidence, placing an increased emphasis on customer retention relative to new business.

Accordingly, the majority of both investment and retail banks have a strong need over the next 12-months to make operating efficiencies, improve their business flexibility, and adopt a more variable cost structure. These requirements are leading banks to make changes to their current operating models.

However, this requirement for changes in operating model is not uniformly felt across bank processes, with investment banks and retail banks having differing emphases for operating model change as well as some areas in common. Unsurprisingly, investment banks are typically looking to operating model change in their investment research while retail banks are focusing on changing their operating models in support of customer service and customer care.

In addition support services are coming under increasing pressure across the banking sector with both investment and retail banks planning significant changes in operating model in their HR and finance & accounting support services, and to a lesser extent in indirect procurement.

Unsurprisingly there is a strong correlation in the banking sector between a need for operating model change and planned adoption of BPO, and both investment and retail banks are showing increasing intent to outsource functions where operating model change is required, including increasingly elements of their support functions such as HR, F&A, and indirect procurement.

In terms of their industry-specific services, retail banks continue to show a greater propensity to outsource than investment banks, with mortgage processing and payments processing continuing to be areas of opportunity.

Despite some concerns regarding the handling of customer service from offshore locations, and the widespread acceptance of multishoring, the net change in delivery behind these new operating models planned by banks over the next 12 months continues to be a net increase in use of offshore service delivery. And as previously demonstrated in NelsonHall's study of banking shared service centers in 2010, banks will increasingly seek to migrate additional work to existing offshore captives.

The conclusions in this article are taken from NelsonHall's report, "BPO Opportunities in Banking: 2011", which is one of a series of reports produced by NelsonHall identifying the key business issues faced by executives in that sector and the resulting impact on their BPO purchasing intentions. The studies are based on 400 interviews with senior executives across five industry sectors.

For further details, contact Paul Connolly at NelsonHall